All You Need to Know about NFTs
In recent years, the fintech world has been shaken by the advent of Non Fungible Tokens (NFT). These unique and non-fungible digital assets have almost everyone, from musicians to sports teams to artists, jumping in on the trend. One of the significant successes of this technology is its revolution of the concept of ownership and value in the digital realm. But what exactly are NFTs, and how do they work?
Gear up for an exciting journey into the world of NFTs as we demystify the concept and examine its impact so far.
WHAT ARE NFTs?
A non-fungible token (NFT) is a unit of data stored on a blockchain that certifies a unique digital asset that cannot be interchanged. We may view NFTs as certificates of ownership for the assets they represent. Like cryptocurrency, an NFT’s ownership records are stored on the blockchain. This connection to the blockchain ensures the authenticity and verification of every digital file. However, NFTs differ from cryptocurrencies like Bitcoin and Ethereum in one crucial aspect: fungibility.
The concept of fungibility comes into play when we consider the interchangeability of assets. Fungible assets can effortlessly be swapped for others of the same kind. Fiat currencies are a quintessential example of fungible assets. You can easily exchange a 1,000 naira note for two 500 naira notes without altering the overall value of the currency you hold. Cryptocurrencies are also fungible. All units of Bitcoin or Ethereum hold the same value.
In contrast, non-fungible assets, such as diamonds, real estate, gold, etc., cannot be seamlessly exchanged for identical counterparts. For example, the unique attributes of each unit of diamond, like cuts, colors, sizes, and grades, influence its value. Paintings are another great example. Although you may recreate a painting through photograph or print, there will always be only one original painting.
HOW ARE NFTS BEING USED?
The use cases for NFTs span wide. NFTs have been used to tokenise both tangible and intangible items such as photos, videos, music, collectibles, and even tweets. This innovation has transformed the concept of ownership rights and the traditional art market by enabling the creation of digital certificates of ownership.
Through this technology, rather than purchasing physical pieces, buyers can receive digital files and exclusive ownership rights, which can be easily verified and transferred through the NFT’s unique data. Additionally, NFTs can contain smart contracts that allow artists to receive a percentage from future token sales through automated agreements.
THE STORY SO FAR
According to Statista, the NFT market grew nearly tenfold from 2018 to 2020. By 2021, NFTs took the world by storm, generating a trading volume worth over $23 billion. NFT trading increased by more than 700% between the second and third quarters of 2021. More recently, NFTs have had a strong Q1 2023, with a 137.04% increase in trading volume to $4.7 billion, the highest since Q2 2022 (DappRadar).
Various industries have adopted NFTs. Musicians such as Eminem, Shawn Mendes, Tory Lanez, Kings of Leon, Grimes, and Steve Aoki have had NFTs sold to fans. Twitter co-founder and ex-CEO Jack Dorsey sold his first-ever tweet in NFT format for $2.9 million (Business Insider). Various Sports clubs and athletes have also rolled out NFTs. Nike’s blockchain-based NFT sneakers, “CryptoKicks,” are another example of NFT use.
As of the time of this writing, the most expensive NFT in history is the Merge, created by renowned digital artist Pak. This series of NFTs sold for an eye-watering $91.8m price tag in December 2021.
CONCLUSION
The story thus far has been truly remarkable! The NFTs market has grown exponentially, with trading volumes reaching unprecedented levels. People from all walks of life have embraced NFTs as a means of connecting with their fans or audience and monetising their digital assets. It is clear that NFTs have unlocked a world of possibilities and challenged the traditional notions of ownership. As the technology continues to evolve with new use cases emerging, we can only anticipate further innovation and the empowerment of creators in previously unimaginable ways.
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